Two well-known companies were recently cited for misclassifying employees as contractors, highlighting an issue that impacts workers across industries.
The major bulk retailer and home delivery company misclassified last-mile delivery drivers as independent contractors, according to the California Labor Commissioner’s Office. The companies, as well as a trucking company, were hit with nearly $900,000 in penalties for the violations.
One well-known company acted as a subcontractor, performing “last-mile” deliveries of large orders from big box stores, the labor commissioner’s office said. Drivers were allegedly shorted on minimum wage and overtime pay and denied meal and rest breaks.
“Companies that exert control over workers cannot evade responsibility by hiding behind layers of subcontracting,” California Labor Commissioner Lilia García-Brower said in a statement announcing the citations. “Misclassification strips workers of their rights and protections, and employers who direct and control their workforce are responsible for paying all wages owed.”
This kind of misclassification sadly remains common across industries in California and throughout the country. It costs misclassified workers thousands of dollars or more each year by eliminating minimum wage and overtime pay rates and shifting tax burdens typically picked up by employers.
The good news is that employers cannot simply choose who is an employee and who is a contractor. California law makes clear that only a small section of workers who truly control their work can be tagged as contractors. The vast majority of workers must be treated as employees.
At Justice Law Corporation, our California wage and hour attorneys help working people across the state fight to protect their rights on the job. We are experienced attorneys who have dedicated our careers to assisting people with wage-and-hour, discrimination, and other cases.
Our lawyers have particular experience going after employers that use misclassification as a weapon to water down workers’ rights and reduce the companies’ costs and legal obligations. Here is what you need to know.
What is Employee Misclassification?
A wide range of workers are being underpaid because they are wrongly classified as independent contractors. Some employers deliberately misclassify workers to skirt their legal responsibilities. Others simply do not understand how the law works.
Contractors generally are treated as self-employed entrepreneurs in the eyes of the law. That means they are not covered by a wide range of rights and protections for employees, such as:
- Minimum wages
- Overtime pay
- Anti-discrimination and retaliation laws
- Workers’ compensation
- Workplace safety rules
- Union rights
- Unemployment insurance
In other words, independent contractors are largely on their own regarding pay and benefits and are left to pick up the tab if they are injured at work.
One benefit of contractor status is that these workers can write off certain business expenses – home office and travel costs, for instance – for tax purposes. Still, contractors are on the hook for both the employer and the employee share of payroll taxes. That easily can outweigh any tax benefits.
Employee or Independent Contractor?
California makes it harder than virtually any other state for companies and other employers to classify workers as independent contractors.
Under the state’s “ABC” test, a worker is presumed to be an employee unless a business can prove all three elements of the test:
- The worker is free from the hiring entity’s control,
- The work is outside the usual course of the business and
- The worker is independently established in a trade.
The burden is on the employer to prove that the worker satisfies all three parts of the test.
Misclassification is rampant in situations involving networks of contractors and subcontractors. Large employers use contractors to handle certain work that they would otherwise hire employees to do. Those contractors then farm the work out to subcontractors, hoping to wash their hands of any responsibilities to the workers hired by the subcontractors to actually perform the jobs.
These kinds of arrangements are not “get out of jail free” cards for employers. Large companies are increasingly being held liable as joint employers for workplace violations by their contractors.
The labor commissioner’s office issued a $2 million fine against Ritz-Carlton and three contractors last year after finding the company misclassified janitors at its Half Moon Bay hotel. Ritz-Carlton used a network of contractors and subcontractors to try to outsource its responsibility for those workers’ protections, the commissioner’s office said.
Why the Bulk Retailer and Delivery Company Were Busted
Large retailers often rely on a web of contractors and subcontractors to fulfill orders. A crop of “last-mile” delivery operators has emerged in recent years, focusing on the final step in the shipping process: getting items from local delivery hubs to customers.
One well-known company provides such services for a number of logistics companies and retailers across San Diego. It copped to wrongly classifying its drivers as independent contractors, following complaints from at least two drivers.
But the company allegedly continued to violate state wage-and-hour laws after reclassifying the drivers as employees. It paid drivers a flat daily rate, which did not include overtime pay or compensation for missed meal breaks.
California law requires that covered employees be paid time-and-a-half wages for time worked over eight hours in a single workday or over 40 hours in a single workweek.
Covered employees must be paid twice their normal rate for time worked over 12 hours in a day.
The labor commissioner’s office concluded that the bulk retailer and delivery company were responsible for the violations and joint employers of the drivers. The companies exercised significant control over the drivers, both directly and indirectly. “They scheduled deliveries, mandated uniforms, enforced specific protocols, and closely monitored driver performance,” investigators found.
Our California Wage and Hour Attorneys Can Help
If you believe that your employer is not fully paying you or violating your rights on the job, you do not need to go it alone. A California wage and hour attorney at Justice Law Corporation can help you evaluate your claim and understand your rights and options.
Contact us at (818) 230-7502 to schedule a free consultation with a California wage and hour attorney.
